Correlation Between Rolls Royce and VirTra

Can any of the company-specific risk be diversified away by investing in both Rolls Royce and VirTra at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Rolls Royce and VirTra into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rolls Royce Holdings PLC and VirTra Inc, you can compare the effects of market volatilities on Rolls Royce and VirTra and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Rolls Royce with a short position of VirTra. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rolls Royce and VirTra.

Diversification Opportunities for Rolls Royce and VirTra

0.07

Correlation Coefficient

Rolls Royce  VirTra

Significant diversification

The 3 months correlation between Rolls and VirTra is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings PLC and VirTra Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VirTra Inc and Rolls Royce is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Rolls Royce Holdings PLC are associated (or correlated) with VirTra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VirTra Inc has no effect on the direction of Rolls Royce i.e., Rolls Royce and VirTra go up and down completely randomly.

Pair Corralation between Rolls Royce and VirTra

Assuming the 90 days horizon Rolls Royce is expected to generate 1.13 times less return on investment than VirTra. But when comparing it to its historical volatility, Rolls Royce Holdings PLC is 2.25 times less risky than VirTra. It trades about 0.1 of its potential returns per unit of risk. VirTra Inc is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  641.00  in VirTra Inc on September 13, 2024 and sell it today you would earn a total of  57.00  from holding VirTra Inc or generate 8.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Rolls Royce Holdings PLC  vs.  VirTra Inc

Rolls Royce Holdings

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent technical and fundamental indicators, Rolls Royce may actually be approaching a critical reversion point that can send shares even higher in January 2025.

VirTra Inc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in VirTra Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, VirTra demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rolls Royce and VirTra

The main advantage of trading using opposite Rolls Royce and VirTra positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rolls Royce position performs unexpectedly, VirTra can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in VirTra will offset losses from the drop in VirTra's long position.

The idea behind Rolls Royce Holdings PLC and VirTra Inc pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.